Wednesday, August 24, 2011

Tontine Wines purchased

This afternoon I added Tontine Wines (HK:389) to the portfolio, paying and average of HK$0.825 per share.

The company has just released its interim results, showing a 21.7% decline in net profit and a 32.7% decline in EPS for the six months to 30 June, 2011. On the surface, this looked like a very bad result and the share price fell 19% today.

My take on the results (available here ) is that the shares look attractive.

Firstly, the interim result included one off expenses/losses of RMB20.9 million relating to share options and RMB14.4 million relating to FX. If these items are treated as non-recurring and backed out of the results, the interim result actually looks a lot better - the EPS would be similar to the previous corresponding period. This is especially so when the 22.1% increase in revenue and 19.3% increase in gross profit show that the company successfully grew its business during the period.

Second, the balance sheet looks very healthy. The company is sitting on RMB1.2 billion (HKD1.4 billion) in cash and has no borrowings. It has shareholders funds of RMB1.68 billion (HKD2.0 billion). The market capitalisation is around HK$1.7 billion.

Like all companies, there are issues (e.g. the extended duration of the receivable, rising costs and absence of an interim dividend) but, on the whole, the company looks like an attractive entry point to China's growing domestic consumer market.